A1429
Title: A copula approach to CVA modeling
Authors: Jakub Cerny - Charles University in Prague (Czech Republic) [presenting]
Abstract: We consider counterparty credit risk in the interest rate swap (IRS) contracts in the presence of an adverse dependence between the default time and interest rates, so-called wrong-way risk. The IRS credit valuation adjustment (CVA) semi-analytical formula based on Gaussian copula assumption, presented in our previous research, is further replaced by Frechet copula (for extreme dependence) inspired by a paper of Cherubini, called the modified approach. The result of all three CVA calculation approaches are compared in a numerical study where we find that our semi-analytical formulas (the Gaussian copula and modified approach) provide more accurate IRS CVA pricing.
